Data consumption is growing and congesting the bandwidth of Internet Service Providers (ISP). For example, wireless Internet data usage is reportedly doubling every year. It is also understood that usage of data is often concentrated during certain peak hours of the day making the bandwidth utilization inefficient. At certain times the network is over-utilized, while at other times it is under-utilized. These periods of heavy usage, sometimes referred to as “peak-hour” congestions, can dominate a cost structure of the ISPs. While peak-hour congestion drives the cost of the ISPs, the ISPs revenue is usually not directly tied to data-usage.
There are multiple ways in which ISPs can charge their customers to obtain a return on investment on their infrastructure. One option is to use a flat fee. The problem with flat fees is that the ISP's revenue does not increase proportional to the consumption of data by their users, but their cost is. For example, an ISP can offer a flat fee plan of a single charge per month for unlimited data. Another pricing mechanism is to charge based on data caps, where there is a different price associated to the maximum monthly consumption. While flat-rates encourage over-use and waste and lead to inefficient subsidies of heavy users, there is evidence that consumers of Internet-based services prefer simple flat-rate pricing schemes.
For example, an ISP can offer plans for predetermined fixed or maximum amount of data per month, e.g., a low data limit of 10 GB for a low fixed fee, e.g., $80/month, and a higher data limit of 30 GB for a higher fixed fee of $135. In this manner, revenue grows as data consumption grows.